Retailers Swipe at Credit-Card Plan

The Credit Card Act signed into law last year was supposed to stop financial institutions from disreputable antics. But instead, some retailers say, it may restrict stay-at-home moms.

Dress Barn Inc., Home Depot Inc., Citigroup Inc. and other companies are urging the Federal Reserve to drop a proposed rule that would require credit-card issuers to consider only a borrower's "independent" income rather than household income. The new standard, which would apply to new credit-card accounts and requests to increase limits on existing accounts, could make it difficult for some customers to get credit on the spot, especially stay-at-home moms.

The proposed rule "would unfairly restrict the ability of many consumers, particularly women not working outside the home, to qualify for credit," wrote David Jaffe, president and chief executive of Dress Barn in a letter to the Fed this month. The company operates 2,477 stores for women and young girls.

Retailers have long enticed customers with store-branded credit cards that offer discounts or other perks. The cards have become a valuable marketing tool and a real-time window into the spending habits of customers.

The proposed changes are tied to a new credit-card law that went into effect this year. The Fed has been implementing and clarifying portions of the law since President Obama signed the Credit Card Act in the spring of 2009.

The suggested measure is "intended to enhance protections for consumers and to resolve areas of uncertainty so that card issuers fully understand their compliance obligations," according to the Fed proposal.

But retailers say the measures go beyond the original intent of the Credit Card Act that sought to limit financial institutions from offering credit cards to college students who don't have income to pay bills.

A Fed spokesman declined to comment. The Fed is soliciting comments on the proposed rule until Monday, but there isn't a specific time frame to implement the proposal.

Under the proposed rule, if a customer with no income requested credit on the spot, he or she wouldn't qualify for it unless a higher-earning spouse applied jointly.

"The proposed clarification would have a chilling effect on the willingness of customers to apply for store credit because of the embarrassment of being denied credit at the point-of-sale, and the possibility of being told by a store clerk in front of other customers that she must have her husband co-sign for the account," wrote John Buell, chief financial officer of Limited Stores LLC, in a letter to the Fed this month.

Anne Fortney, a lawyer at Hudson Cook LLP in Washington, said the Fed proposal would be a setback for women's rights.

"It is astonishing that people have forgotten how difficult it was 40 years ago, particularly for women, to establish credit," said Ms. Fortney, who represents banks and retailers on consumer-finance issues. "This would really take a lot of women back to where they were in the early 1970s."

Some retailers say the proposed rule will impede a broad range of customers. Home Depot is challenging the Fed's latest measure, saying "many consumers will be unfairly evaluated and unable to access the credit that they need." That would be "particularly unfortunate for those in situations where emergency repairs are needed or in the unforeseen case of a natural disaster," wrote Dwaine Kimmet, Home Depot's treasurer and vice president of financial services, in a Dec. 22 letter to the Fed.

Citigroup, which issues the Home Depot card and plastic for other retailers, also opposes the rule.

"The proposed amendments regarding use of household income are not warranted, will harm consumers, and should not be adopted," wrote Carl Howard, Citigroup's deputy general counsel, in a 10-page letter to the Fed on Dec. 20.

The proposals are the latest in a string of tweaks that the Fed has made to store-branded credit cards in the past year. Retailers last year also opposed a Fed proposal that required them to gather more financial information from customers before giving them credit. Store-branded credit cards typically carry smaller credit lines than cards that can be used anywhere. That is why retailers say store-branded cards are less risky to borrowers.

The Fed ultimately tweaked that proposal to allow retailers to use a "reasonable estimate" of income. Otherwise, retailers would have had to require customers to provide pay stubs and tax documents when applying for a credit card at the cash register.